Invested in stocks? You will lose money, don't take this step in panic

The stock market has been highly volatile in the last few months. First the indices, that is Sensex and Nifty, were soaring to new highs daily. Then they were on a constant downward trend for the last few trading sessions. This has caused many investors to press the panic button. One may continue to see the same volatile phase for some more time, mainly due to factors like the US-China trade issues, weak rupee, likelihood of US interest rates rising, oil prices and upcoming elections in India.

So what should an investor, who is already invested in direct stocks or holding mutual funds schemes, do? Well the answer is, do nothing. In fact, any market correction provides you with a great opportunity to invest in quality stocks available at an attractive price point, driven by the fact that the fundamentals of these companies haven't changed at all. You need to ask yourself whether your financial goals have undergone changes? Most certainly not, which gives you no reason for changing your investment strategy to match market movements.

The market dips may scare investors who are new to the stock market investments. But if you have been investing over the last couple of years, then you must be familiar with these sporadic events. This also raises another important point that If you are not intending to invest for a long term, say more than 5 or 10 years, then stock market investments are not for you.

The worst mistake you can do is to sell your stocks or redeem your mutual funds schemes out of panic, because it goes against the basic principle of investing at a lower price and selling at a higher price point. However, in case of a market crash, people tend to do exactly the opposite.

Looking at the continued negative market trends, many investors start thinking of stopping their Systematic Investment Plans of MFs, which is a big mistake. The same should be avoided at any cost because it puts their financial goals in jeopardy.

Another trend that is seen in case of a falling equity market scenario is that investors start comparing their stock market and MF returns with other asset class, mainly bank fixed deposits. Then they start worry about the difference in returns. But you should not lose your sleep over the short-term negative returns from equity investments or thinking that you would have been better off investing the same money in FDs, It is not an apple to apple comparison. If you are happy with an annual return in the range of 12-14%, then you should invest in MF schemes via SIPs and Systematic Transfer Plan route to beat any market volatility in the long run.

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You need to focus on creating and having a realistic financial plan, which you need to stick to, irrespective of any temporary market movement. Follow your investments strategies. Not making rash decisions and staying invested is the key.

(The writer is chief gardener at Money Plant Consultancy)

Source: DNA Money